How has the EU and UK relationship evolved in 2025?

2025 has been a difficult year for pretty much the whole world. The election of President Trump upended many norms in trade, security and economics and both the EU and UK are still working through the consequences. The whole previous consensus, at least in the Western democracies, based on multilateralism in trade and defence is at risk. 
 
For Europe as a whole, facing a continuing military threat on its borders has proved a huge external shock, exacerbated by US ambivalence on continuing to provide military support under NATO. For the EU, the situation in Ukraine, a candidate Member State, has exposed its lack of unity and military weakness. This and the recent US administration attacks on the very existence of the EU pose an unprecedented challenge. 

And for the UK, the Ukraine crisis has also triggered a reassessment of its defence priorities and spending. As 2025 closes, the situation in Ukraine remains critical, with the US and Russia seemingly trying to impose a peace deal on Ukraine. But the EU, Germany, France and UK are working as I write together to come up with new ideas for peace.

For the EU, the situation in Ukraine, a candidate Member State, has exposed its lack of unity and military weakness. This and the recent US administration attacks on the very existence of the EU pose an unprecedented challenge.  

Meanwhile, the economic situation in Europe remains worrying. Growth and productivity growth are low. Government and private debt are at record levels. And investment in innovation and returns on R&D growth remain significantly lower than in the US and China.  Both the EU and UK face similar challenges - how to increase growth, build scalable innovative companies, shift savings from cash into more productive assets, and how to handle US trade tariffs.

EU priorities for 2025

No surprise then that the EU priorities for 2025 have been security and competitiveness. On the latter, the Commission launched its Competitiveness Compass in January, building on the Draghi report from late 2024. To my mind, both essentially push for an industrial competitiveness strategy based on deepening the Single Market in order to achieve scale in innovation and technology - to compete primarily with the US - whilst maintaining EU climate change objectives and increasing economic security. But in practice, the focus in Brussels this year has been a very political push for simplification, including on sustainability, in a series of so-called omnibus packages. As everyone should know, it takes a lot of regulation to deregulate!  Progress I think it is fair to say has been slow and confusing and has exposed severe rifts in the centre right - centre left coalition that voted in President von der Leyen.

On the investment side, the EU has combined both increased public financing (for example via Horizon Europe into innovation, or SAFE for defence procurement) with an ambitious, some might say last ditch, attempt to mobilise private capital in its Savings and Investments Union (SIU) strategy. But the challenges here are tough. Public finances across the EU are weak so scope for public investment is limited. And whilst private savings pools are deep, they are largely held in bank cash deposits. Changing investment culture across the Member States to move to funded pension schemes or to saving products invested in real assets will take time. Furthermore, the new Market Integration package published on 4 December focuses on centralising some financial supervision at EU level, an issue which may well make medium term sense but which is likely to raise Member State hackles and detract from the underlying economic changes needed.

UK priorities for 2025

The UK has taken a similar economic approach to the EU. As I have noted on a previous blog, the Government launched a set of industrial strategies, including on innovation and financial services, in the summer. The Chancellor set out an ambitious competitiveness plan for financial regulation, and the UK regulators have responded positively to that. No broad omnibus measures, but rather targeted proportionate regulatory changes. In particular the focus on pension reforms and savings (for example ISA changes) are very similar to the EU SIU strategy. And as in the EU, the poor state of public finances limits the level of public investment in innovation, defence and public services.

As in the EU, the poor state of public finances limits the level of public investment in innovation, defence and public services.

EU-UK strategic partnership

In the meantime, against this difficult political, security and economic background, the wider UK-EU relationship has developed in a largely positive way. The first EU-UK Leaders' Summit in May 2025 built on the Windsor Framework agreed last year and set out areas for further work in a so-called "common understanding", whilst leaving the TCA bilateral trade deal untouched. These areas include security and law enforcement, energy markets, food standards (so called SPS - sanitary and phytosanitary standards), youth mobility or experience, ERASMUS (where it has just been announced the UK will rejoin), and defence.

Progress on these areas has however to my mind been too slow. The Commission only recently received negotiating mandates on some from Member States. And discussion over quite possibly all these areas are likely to hit the obstacle of UK financial contributions. It has been widely reported for example that negotiations to join SAFE, the UK defence procurement scheme, have collapsed due to EU demands for a huge UK financial ex ante contribution.

Financial services cooperation

On financial services, which regrettably fall outside the TCA trade deal, there have been two meetings in 2025 of the Regulatory Cooperation Forum set up alongside the TCA. These have been reportedly friendly and positive. Both sides have very similar regimes, based on the Single Market regime that was of course heavily influenced by the UK as a member state, face very similar challenges (for example digitisation, sustainable finance and financial stability) and sit together as close allies in the international standard setting bodies. Yet neither side sees fit yet to commit to recognising each other's regimes and allowing market access on that basis. It can be done - the UK and Switzerland have done it in a mutual recognition agreement that takes effect in January 2026.

The really urgent economic issues noted above could really benefit from more cooperation and cross border investment.  Defence seems to me the most obvious case.  Defence start-ups need access to risk capital widely accessible in the UK, often from US private equity and venture capital. Banks are less likely to take the necessary risks.  But even in bank lending, where non-EU banks could supplement lending to the EU defence sector, the EU has bizarrely banned lending to EU entities from non-EU banks.  This kind of protectionism is self-harming and runs counter to the spirit of cooperation in the Forum.

Need for more ambition

So, it seems to me both sides can do better. On the wider relationship, there is increasing frustration in the UK private sector at the trade barriers imposed by the TCA. I have long argued that the TCA is a 19th Century goods trade deal imposed on 21st Century service-based economies. On defence, the situation is becoming critical, if not existential. The EU needs the UK's military support. And the City can provide a much-needed source of investment. On energy markets, the two sides are already interdependent so why not move fast and bring down energy costs to benefit consumers on both sides.  
 
Increasingly the sentiment I hear in Member States is that the time has come for a significant reset. But these views seem divorced from the negotiations in Brussels. Citizens and business are clear in wanting better cross border access - whether in education, on holiday, or in commerce - and see the Brexit outcome as suboptimal. For our part, the City is supportive of the wider reset and the new strategic EU-UK partnership.  And in financial services, it is surely time to focus on the specifics of deepening cross border investment and liquidity.  Indeed, the City has thrived since Brexit and the majority of trading in EU bonds and shares as well as derivatives and commodities remains in London.  Better access to that liquidity would be a big benefit to EU firms, European competitiveness and the European economy as a whole.  We will look at the issue of how deeper UK, Swiss and EU capital markets can be a win-win in the New Year  when we publish a new report from New Financial

Citizens and business are clear in wanting better cross border access - whether in education, on holiday, or in commerce - and see the Brexit outcome as suboptimal.

In the meantime, and as we head into the festive season, I wish readers a Merry Christmas and a Happy New Year, and look forward to 2026 bringing renewed momentum and cooperation in EU–UK relations.

About the author

Nick Collier joined the City of London Corporation as Managing Director of the Brussels office in March 2019. He was previously Global Head of Government Relations at Refinitiv (Thomson Reuters). Before that he worked at a range of organisations in the financial services sector, including Morgan Stanley and the Bank of England and, until recently, served as Chair of TheCityUK’s Public Affairs Group as well as Deputy Chair of the International Regulatory Strategy Group. Nick is chair of diplomatic engagement at the International Business and Diplomatic Exchange. He holds a MSC in Economics and Finance from the London School of Economics and a BA from Oxford.